Jakarta – In the latest dispute regarding palm oil, Indonesia and the European Union have clashed over biodiesel import duties that have been slapped on the Southeast Asian nation's commodity since 2019.

The bloc said on Thursday it had launched an investigation into whether biodiesel from Indonesia was circumventing EU duties by going through China and the United Kingdom, only two days after Indonesia filed a case regarding the bloc's imposition of duties with the World Trade Organization (WTO).

The EU is Indonesia's third-largest destination for palm oil products and an important market for its biodiesel, which is made from palm oil. Indonesia is the world's biggest palm oil producer.

The EU's probe followed an initial request from the European Biodiesel Board, an association of European producers.

"The request contains sufficient evidence that the existing countervailing measures on imports of the product concerned are being circumvented by imports of the product under investigation," the European Commission said in the EU's official journal.

"A change in the pattern of trade involving exports from Indonesia and the People's Republic of China and the United Kingdom to the Union has taken place following the imposition of the existing countervailing measures," it added.

Earlier this week, Indonesia requested the WTO examine the EU's imposition of duties on biodiesel imports from Indonesia.

The request was circulated to WTO members on Aug. 15, the body said, adding that Indonesia argues that the EU countervailing duties and the investigation that led to their imposition are inconsistent with WTO provisions.

The EU has imposed countervailing duties of between 8 and 18 percent on Indonesian biodiesel since 2019, according to Djatmiko Bris Witjaksono, the Trade Ministry's director general of international trade cooperations.

"The imposition of the import duties has caused serious damage to Indonesian industry, especially when the global economy has only started to recover from the COVID-19 pandemic," Djatmiko said on Wednesday, as quoted by Reuters.

Countervailing duties are imposed under WTO rules with the goal of neutralizing the negative effects of subsidies.

Indonesia's total biodiesel exports dropped 28 percent in 2019 from a year earlier, to 1.2 million tonnes according to the Statistics Indonesia.

The EU accounted for about 52 percent of Indonesia's 2018 biodiesel shipments and 45 percent in 2019.

Indonesia shipped 435,827 tonnes of biodiesel in 2022, with 22.47 percent of that shipped to the EU.

Asked about this situation, a European Commission spokesperson told reporters that the EU was confident its duties on Indonesia were in full compliance with WTO rules and that the EU was ready to discuss the matter with Indonesia.

Trade relations between the EU and Indonesia have been strained by the bloc's move to limit imports of commodities linked to deforestation, which is expected to curb EU imports of palm oil from top suppliers Indonesia and Malaysia.

As well as biodiesel, palm oil is used widely in food and cosmetics.

Welcoming the European Commission's investigation, the European Biodiesel Board said it estimated that imports circumventing duties may have cost the EU around 221 million euros (US$240.34 million) last year.

The association was also working with EU authorities to address allegations of fraudulent biodiesel imports from China, it added in a statement.

Germany earlier this year asked the European Commission to investigate shipments from China amid industry concerns that imported biodiesel declared as based on recycled feedstock may contain cheaper oils.

The EU has also been at loggerheads with Indonesia and Malaysia over its implementation of the EU Deforestation Regulation (EUDR), which has sought to tighten rules on trading commodities that the bloc has associated with deforestation, including palm oil.

The palm oil-producing countries have argued that the regulation will disadvantage smallholders in the supply chain who will need certification to prove land legality and traceability.

Both Indonesia and Malaysia have also expressed concern over the EU's planned benchmarking system in the regulation, which assigns a level of risk related to deforestation and forest degradation. The system will assign the categories of low, standard and high, with the latter resulting in more inspections and controls by the bloc on goods shipped by these countries into the region.

"The argumentation and methodology behind the benchmarking are unclear and would be very damaging to many countries if they were given the high-risk status," the Office of the Coordinating Economic Affairs Minister said in June.

In a joint statement on June 1, both Indonesia and Malaysia urged the EU to classify them as low-risk countries.

Source: https://asianews.network/indonesia-eu-trade-barbs-over-biodiesel-import-duties